US more than doubles estimates for recoverable gas reserves

US recoverable reserves of natural gas are much larger than previously estimated, the government’s Energy Information Administration has said, suggesting higher production can be sustained at lower prices than it expected a year ago.

In the first release from its Annual Energy Outlook for 2011, the EIA more than doubled its central estimate of the country’s technically recoverable reserves of shale gas, from 353,000bn cubic feet to 827,000bn cubic feet.

The estimate would be enough to cover the entire gas consumption of the US for 36 years.

Shale gas is trapped in rocks that were previously uneconomical to tap, but the source has been opened up by falling production costs, using techniques of long-distance horizontal drilling of wells and “hydraulic fracturing”: pumping water mixed with additives at high pressure into the rock to crack it so gas can flow out.

The rapid development of shale gas production has already had profound effects on the US energy system, driving down prices and inspiring companies to invest in plants to produce supercooled liquefied natural gas that can be exported in tankers to Europe or Asia.

The EIA forecasts in its central “reference case” that the annual average price of gas at the wellhead will remain below $5 per thousand cubic feet until 2022.

That represents very little increase on today’s futures market price of about $4.20 per thousand cubic feet for gas for delivery next month.

Cheap gas prices have undermined the economic case for investment in nuclear and wind power, by making gas-fired power generation more competitive and holding down electricity prices.

The EIA forecasts that the price of electricity will fall from 9.8 cents per kilowatt hour in 2009 to 8.9 cents in 2016, and still be only 9.2 cents (using the US dollar price in 2009) in 2035.

As a result, renewable energy, including hydro power, is expected to rise to only 14 per cent of electricity generation by 2035, up from 11 per cent in 2009.

However, that slow pace of growth assumes that federal subsidies for renewable generation expire as expected, rather than being extended. The EIA notes: “Their extension could have a large impact on renewable generation.”

The tax cuts bill now being debated in the US Congress includes an extension of the Section 1603 investment grants that cover 30 per cent of the cost of renewable energy projects, but only for another year.

The wind and solar power industries have warned that they face a collapse in investment if the grants come to an end.

The EIA also forecast a moderate real terms increase in the price of oil, from about $88 a barrel on Thursday to $125 in 2009 dollars, or about $200 in nominal terms, by 2035.

The agency predicts increased oil production from countries such as Russia, Kazakhstan, Brazil and Canada, as well as the members of Opec, the oil producing countries’ cartel.

US oil consumption is expected to remain roughly unchanged by 2035, at about 20m barrels a day.